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Kudos to banks for standing with Kenyans in pandemic

By Gathu Kaara
Monday, October 19th, 2020
Central Bank of Kenya. Photo/PD/File
In summary

Banks are normally an attractive punching bag for many of the adversities that afflict businesses in Kenya.

The litany is long-winded- outrageous interest rates, non-transparent auctioning off of property of borrowers, ever-rising chase for profits at all costs etc. 

They have long been pilloried- and rightly so. This column has had occasion to take up the cudgels against banks for some of these reasons.

However, it has been a completely different ballgame during the Covid-19 pandemic.

Banks and their regulator, the Central Bank of Kenya (CBK), have come together to bend over backwards to accommodate borrowers of personal and business loans whose incomes suffered very adversely when the economy tanked, due to the containment measures instituted by the Government to fight Covid-19.

Especially critical was that banks allowed borrowers to renegotiate the terms of their loans.

Whether that was the tenor of the loan, or interest rates, or even repayment holidays and easy repayment instalments based on capacities of borrowers, banks have been exercising a lot of accommodation to give their clients flexibility during these tough times.

Most banks were offering repayment holidays of between six months to a year to their clients. Sector reports state that loans worth Sh1.12 trillion were restructured.

In the entire banking sector- whether that is banks, microfinance institutions or saccos, this has been the template. This has afforded the economy as a whole immense relief. 

The actions by the banking sector have validated the Government’s drive over the years to strengthen the core capital and other regulatory requirements for banks and the financial sector in general. 

Only a strong banking sector could have the muscle to do what the banking sector has done for the economy in these current times.

So, kudos to the banking sector for standing with Kenyans. One hopes this will now be the mindset that will be the driving force for the financial sector going forward- sensitivity towards borrowers, especially, small and medium enterprises, and the economy in general.

The early signs are encouraging. Several of the large banks have created a fund for small and medium enterprises to borrow from to assist them get back on their feet.

This makes sense, as devastated businesses will need a boost to jumpstart, and begin generating cashflows to resume repayment of their loans.

As for the CBK and its governor, Dr Patrick Njoroge, all credit to them. When the pandemic came, the governor was quick off his feet, and brought together the chief executives of the banking sector to discuss how best to assist borrowers tide this over, as well as what CBK could do to assist banks achieve this.

The governor immediately gave the government Sh7.4 billion to boost the fight against the pandemic as soon as Covid-19 landed in Kenya.

CBK took some vital steps in this regard, that gave banks the leeway to relax repayment terms for their borrowers.

Macroeconomic fundamentals like inflation, exchange rates, and interest rates remain sound.

To maintain a stable economic environment, The Monetary Policy Committee (MPC), under the chairmanship of the governor, maintained the benchmark lending rate at 7 per cent for the fifth consecutive session.

Borrowers were protected during the pandemic period by the suspension of listing on the Credit Reference Bureaus (CRBs).

The economy looks good for a quick recovery with the right stimulus from the Government.

For borrowers, it is time to demonstrate good corporate citizenship. It is time for personal responsibility.

As the economy reopens and cashflows return, borrowers need to prioritise repayments of their loans to the banking sector.

This is critical because the banking sector is currently overextended carrying a huge burden of loans that have not been serviced for months.

Borrowers need to return the favour and resume repayments. The great news is that banks are willing to listen. It takes two to tango. [email protected]

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